Fisher Investments Editorial Staff
Currencies, Media Hype/Myths, US Economy

The Dollar’s Doom Looms?

By, 10/08/2009

Story Highlights:

  • Fears abound concerning the dollar's demise as the world's dominant currency.
  • A recent article suggesting a number of countries are secretly discussing ending the practice of pricing oil in US dollars is adding to dollar concerns. How oil is priced matters little to the dollar or any other currency.
  • Globally diversified investors needn't worry about the state of the dollar—a change in the dollar's status as the world's dominant currency is highly unlikely and would take decades if it did occur.

___________________________________________________________________________________________________

An article published Tuesday claims Gulf Arab nations, along with China, Russia, Japan, and France, are secretly discussing no longer pricing oil in US dollars, leading to fears of the dollar's demise as the world's dominant currency. According to the article, oil would instead be priced using a new basket of currencies including the yuan, euro, gold (a commodity, not a currency), and a new unified currency planned for the Arab Gulf states. However, these secret talks are most likely speculation or rumor (indeed, many of the nations "involved" in these talks are publicly denying them).

Even if the story wasn't so outlandish and the rumors turn out to be true, it simply doesn't matter what oil is priced in, be it dollars, euros, gold, or hamburgers—they're all just flavors of money (excepting the burger, which is a flavor of meat). The matter of the dollar's status as an invoicing currency (for oil or any other good) and the dollar's status as the world's main reserve currency are separate issues. If oil producing countries receive euros, yen, or any other currency for their crude but prefer to hold dollars in reserve, they simply convert those currencies to dollars. If they're paid in dollars and prefer to hold other currencies, they do the opposite. Aside from some friction resulting from currency conversion, how oil is priced means little to any of the currencies involved.

Anti-dollar rhetoric is nothing new. For decades now, other countries have decried the "exorbitant privilege" afforded the US thanks to the dollar's status as the world's dominant reserve currency. This is just another chapter in a very old book.

Countries abandoning the dollar as a reserve currency en masse could have negative implications for the dollar and the US's ability to borrow, but a change in the dollar's reserve status is highly unlikely and would take decades if it did occur. No one is forcing countries to currently hold dollars. Countries choose to hold the US currency because they see the dollar as stable, safe, and highly liquid—traits that have nothing to do with oil.

Long-time dollar critics are opportunistically using the recent financial crisis to knock the almighty dollar down a peg. Globally diversified investors needn't fret. Such worries are nothing new and trotted out time and again during periods of economic uncertainty. In the end, anti-dollar rhetoric will likely amount to a lot of bark but little bite.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:


2 Ratings:

5/5 Stars

2.5/5 Stars

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.